Tuesday, January 1, 2008
Watch out for the Street signs- Is This As Good As It Gets-Special Pages
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The advice sounded logical as the Sensex had doubled to 5,800 in just eight months. The same forecast was on offer at the end of 2004, 2005 and 2006. But the market has been improving on its performance every successive year, leaving the most optimistic of investors dumbfounded.
Nearly 80% of the stocks on BSE delivered positive returns since the start of the calendar. Which means even though returns in some of these stocks may have been lower than bank deposit rates, investors would not have suffered an erosion of capital. But if many brokers are to be believed, these statistics would be of cold comfort to many retail investors.
The sharp dips in March and late July, with each correction followed by a dramatic rise, caught many investors on the wrong foot and they ended up surrendering a large part of their earlier gains after having sold out in panic. Also, the sudden shift of focus from front-line shares to midcaps and vice-versa a few times during the year took many by surprise. Considering that even some of the savvier operators and fund managers were left scratching their heads in bewilderment on occasions, one can only imagine the turmoil that many retail investors would have faced.
Whatever the 'recoupling' and 'decoupling' theories doing the rounds, market gurus maintain the days of easy money are past, and that investors will have to sweat it out for returns in 2008. On the positive side, they point out that there are plenty of opportunities available. Only that investors wanting to pour their money directly into stocks will have to do a bit more of homework, if they are seeking bumper returns.
Value investing will the mantra for outperformance next year, opine market watchers. "Retail investors should invest in equities on the assumption that we are operating in a long-term bull market based on structural changes," says BSE broker Ramesh S Damani. He is bullish on the logistics, tourism and cement sectors, and says there are enough cheap stocks in these sectors that could well turn out to be among the winners in 2008. He does not want to recommend specific stocks, but advises investors to steer clear of momentum stocks — whose prices move up sharply without any relation to earnings potential.
"The risks have gone up considerably, and the returns may not be like what they were last year," Mr Damani warns.
Motilal Oswal, chairman of Motilal Oswal Securities, shares this view. "Avoid momentum, stick to stocks with low price-earning multiples," says Mr Oswal, who is bullish on shares of PSU banks, automobile, cement and steel companies.
He does not expect the Sensex to rise more than 10% next year, so the key to better returns will be a disciplined approach.
"Set aside a sum every month, and invest it in either mutual funds or equities depending on your comfort levels," is his advice. Among large caps, he is bullish on Tata Steel, State Bank of India, DLF and Maruti, while among midcaps his bets include Dena Bank, Corporation Bank and Birla Corp.
Some of the other sectors that are being talked of as potential winners include oil marketing and MNC stocks, which have underperformed this year. MNC shares — especially those in the pharma sector — are reflecting concerns of growth and ownership, which may have been overdone.
These are some of the so-called safety nets that in reality are not as fail-proof as most retail investors would believe them to be.
#1. This stock looks a good buy. Disclosures to the exchanges reveal the promoters have been recently buying the shares in the secondary market. This means the stock is undervalued.
Reality: Promoters buying own shares often reflects their confidence in the business. But also check the credentials of promoters. Many hold shares of their company in benaami accounts. So it could be case of transfer of shares from the benaami accounts to official accounts.
#2. I think I should subscribe to this IPO. Valuations appear expensive, and the company's track record is not impressive. But QIB portion has been fully subscribed.
Reality: In some smaller issues, FIIs are fronts for promoters or entities set up by merchant bankers. Even in mid-sized issues, some fund managers are said to be paid appearance fees. The managers place bids — which help boost subscription figures — but have an arrangement with merchant bankers that they will not be allotted shares or will be allowed to withdraw bids.
#3. I have a report from my broker which tells me this stock is a good short-term buy.
Reality: Check the price target and also see where you figure in the priority list of your broker. Plus, the broker would have tipped off his privileged clients before handing over that report to his economy-class clients.
Nearly 80% of the stocks on BSE delivered positive returns since the start of the calendar. Which means even though returns in some of these stocks may have been lower than bank deposit rates, investors would not have suffered an erosion of capital. But if many brokers are to be believed, these statistics would be of cold comfort to many retail investors.
The sharp dips in March and late July, with each correction followed by a dramatic rise, caught many investors on the wrong foot and they ended up surrendering a large part of their earlier gains after having sold out in panic. Also, the sudden shift of focus from front-line shares to midcaps and vice-versa a few times during the year took many by surprise. Considering that even some of the savvier operators and fund managers were left scratching their heads in bewilderment on occasions, one can only imagine the turmoil that many retail investors would have faced.
Whatever the 'recoupling' and 'decoupling' theories doing the rounds, market gurus maintain the days of easy money are past, and that investors will have to sweat it out for returns in 2008. On the positive side, they point out that there are plenty of opportunities available. Only that investors wanting to pour their money directly into stocks will have to do a bit more of homework, if they are seeking bumper returns.
Value investing will the mantra for outperformance next year, opine market watchers. "Retail investors should invest in equities on the assumption that we are operating in a long-term bull market based on structural changes," says BSE broker Ramesh S Damani. He is bullish on the logistics, tourism and cement sectors, and says there are enough cheap stocks in these sectors that could well turn out to be among the winners in 2008. He does not want to recommend specific stocks, but advises investors to steer clear of momentum stocks — whose prices move up sharply without any relation to earnings potential.
"The risks have gone up considerably, and the returns may not be like what they were last year," Mr Damani warns.
Motilal Oswal, chairman of Motilal Oswal Securities, shares this view. "Avoid momentum, stick to stocks with low price-earning multiples," says Mr Oswal, who is bullish on shares of PSU banks, automobile, cement and steel companies.
He does not expect the Sensex to rise more than 10% next year, so the key to better returns will be a disciplined approach.
"Set aside a sum every month, and invest it in either mutual funds or equities depending on your comfort levels," is his advice. Among large caps, he is bullish on Tata Steel, State Bank of India, DLF and Maruti, while among midcaps his bets include Dena Bank, Corporation Bank and Birla Corp.
Some of the other sectors that are being talked of as potential winners include oil marketing and MNC stocks, which have underperformed this year. MNC shares — especially those in the pharma sector — are reflecting concerns of growth and ownership, which may have been overdone.
These are some of the so-called safety nets that in reality are not as fail-proof as most retail investors would believe them to be.
#1. This stock looks a good buy. Disclosures to the exchanges reveal the promoters have been recently buying the shares in the secondary market. This means the stock is undervalued.
Reality: Promoters buying own shares often reflects their confidence in the business. But also check the credentials of promoters. Many hold shares of their company in benaami accounts. So it could be case of transfer of shares from the benaami accounts to official accounts.
#2. I think I should subscribe to this IPO. Valuations appear expensive, and the company's track record is not impressive. But QIB portion has been fully subscribed.
Reality: In some smaller issues, FIIs are fronts for promoters or entities set up by merchant bankers. Even in mid-sized issues, some fund managers are said to be paid appearance fees. The managers place bids — which help boost subscription figures — but have an arrangement with merchant bankers that they will not be allotted shares or will be allowed to withdraw bids.
#3. I have a report from my broker which tells me this stock is a good short-term buy.
Reality: Check the price target and also see where you figure in the priority list of your broker. Plus, the broker would have tipped off his privileged clients before handing over that report to his economy-class clients.
Source: ET Features-The Economic Times
This post was written by: Franklin Manuel
Franklin Manuel is a professional blogger, web designer and front end web developer. Follow him on Twitter
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